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Industrial Revenue Bonds
Industrial Revenue Bonds (IRBs) are a means of financing the acquisition,
construction, enlarging or improving of industrial development facilities
and involve the issuance of tax-exempt bonds by public corporations
specifically created for that purpose by local governments. The
key advantage of industrial revenue bonds lies in their tax-exempt
status; interest paid to the buyer of the bonds is not subject to
federal income tax as a result the bond buyer will accept a lower
rate of interest on the bonds. There are two programs available:
Tax-Exempt Economic Development Bonds
"Industrial Revenue" and "Exempt Facilities"
Bonds
Tax Status
Bond interest is exempt from federal income tax (subject to AMT).
Eligible Projects
Manufacturing and processing project located in Washington. Feedstock
for "exempt facilities" projects must be classified as
at least 65% solid waste.
Eligible Costs
Land acquisition, building construction and acquisition of new equipment.
Used equipment can be financed only if purchased as part of an existing
plant.
For "exempt facilities" projects, only that part of the
project which either
qualifies as "solid waste disposal" or is functionally
related can be financed on a tax-exempt basis.
Project Size
For industrial revenue bonds, maximum total capital expenditure
for the project - including the proposed and any existing bond issues
- of $10 million measured over a period beginning three years before
and ending three years after bond issuance. For "exempt facilities"
projects, no set dollar limit, however, bond cap allocation is currently
restricted to 30% of initial category allocation (approx. $25.6
million) in a given year.
Financing Source
National tax-exempt credit markets; no governmental funds or guarantees
are involved. Bonds must be either sold on the open market or privately
placed with qualified institutional/individual investors.
Security for the Bonds
No governmental financial support, either direct or indirect, is
provided. Payment of interest and principal is solely the responsibility
of the borrowing company. Publicly sold bonds must be credit enhanced
by a letter of credit from an investment grade-rated bank.
"Taxable Tail" Economic Development
Bonds
Consolidated Taxable/Tax-Exempt Nonrecourse Revenue Bond Financing
Program
Tax Status
Interest for "Taxable Tail" bonds is subject to federal
income tax.
Eligible Projects
"Taxable Tail" bonds will normally used in conjunction
with tax-exempt "exempt facility" or industrial revenue
bond financings to allow the total project - both the parts eligible
for tax-exempt financing and those not so eligible - to be financed
in one bond issuance with the cost advantages of the melded rate
and issuance process efficiencies.
Borrowing company must be creditworthy and project must be located
in Washington.
Eligible Costs
(1) costs eligible for tax-exempt financing but for which insufficient
bond cap is available, and
(2) costs not eligible for tax-exempt financing such as working
capital, capitalized R&D costs and capitalized interest.
Outstanding obligations incurred as a part of the project can also
be refunded.
Project Size
No set dollar amount. WEDFA is restricted by statute from issuing
more than $750 million of bonds in total.
Financing Source
National taxable credit markets. No governmental funds or guarantees
are involved. The bonds must be either publicly sold or privately
placed with qualified investors.
Security and Bonds
No governmental financial support is provided. Payment of interest
for the principal is the responsibility of the borrowing company.
If the bonds are publicly sold, the financing must be secured by
a letter of credit from a commercial bank rated investment grade
by one of the major rating agencies.
Issuing Authority
Washington Economic Development Finance Authority (WEDFA), a public
corporation of the state authorized by the legislature to issue
nonrecourse tax-exempt/taxable economic development revenue bonds.
Additionally, public corporations created by port districts, cities,
towns and counties can have issuing authority.
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